Thursday 5th October 2017

Ban on agents' letting fees – is there a power shift towards tenants?

New research from Fixflo shows that nearly 42% of all agents in the UK believe the looming letting fees ban will be the biggest challenge to their business this year. This is no surprise considering there is a real fear that the letting fee ban will lead to job cuts and will significantly reduce letting agents’ income.

So is the future bleak for letting agents and is this ban good news for tenants?

Lettings agents make significant profits on every new tenancy. According to Open Rent, letting agents are making 473% profit on some fees. It found that the real cost of referencing a tenant is £15 and yet recent government research indicates that on average, it costs £86. There is also a huge profit on the average cost of a tenancy renewal which is £85, but by using a calculated cost based on it taking ten minutes to check a renewal contract and an average negotiator salary of £20,000, the real cost is £4.

These costs represent significant profits for letting agents and it looks like they will be wiped out when the ban comes into force. This appears to be a victory for Shelter, who has been calling for a ban on letting agent fees since 2013. Government figures show that tenants pay on average more than £200 in letting agency fees, on top of rent in advance and deposits. Shelter found even higher average costs and that one in seven tenants have been charged more than £500.

There have been numerous media reports on the implications of the forthcoming ban, and the inevitable is that the costs will still have to be paid by the tenant in one form or another.

In reality, landlords would only need to raise rents by £41.66 per month to cover the letting agents’ fees over 12 months, based on an average of £500.  If a tenant stayed in a property for two years, the landlord would receive an additional £500 a year in rent and the tenant would be paying double the fees.  Over a five year tenancy, tenants would be paying £2,000 for the fees.  How is this helping tenants?  In the long run, tenants could be paying much more.

If the lettingmarket was regulated, there would be no need for a letting fees ban. The government could set caps for all the costs such as references, inventories, ID checks etc. This would ensure tenants were charged fairly. Shelter and the government could also concentrate on removing the unscrupulous accommodation providers.

It is naïve for Shelter and the government to think banning letting agents’ fees is in the interests of the tenant. Letting agents provide a valuable service to landlords and tenants and this has to be funded. 

Terry Mason is a director at Housing Hand.




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